Congress nears dismantling of post-crisis bank rules

Congress was taking a final step Tuesday toward dismantling a chunk of the rules framework for banks installed to prevent a recurrence of the 2008 financial crisis that brought millions of lost jobs and foreclosed homes.

The House planned to approve legislation to roll back the Dodd-Frank law, easing rules for banks and notching a legislative win for President Donald Trump, who made gutting the landmark law a campaign promise.

The Republican legislation, pushed by Wall Street banks as well as regional banks and smaller institutions, carries bipartisan support. The bill splintered Democrats into two camps when the Senate voted 67-31 to approve it in March. Republicans, who had uniformly opposed Dodd-Frank in 2010, unanimously voted for the Senate bill.

The bill would increase the threshold at which banks are deemed so big and plugged into the financial grid that if one were to fail it would cause major havoc. Those banks are subject to stricter capital and planning requirements. Backers of the legislation are intent on loosening the restraints on them, asserting that would boost lending and the economy.

The legislation is aimed at especially helping small and medium-sized banks, including community banks and credit unions. But critics argue that the likelihood of future taxpayer bailouts will be greater once it becomes law. They point to increases in banks’ lending and profits since Dodd-Frank’s enactment as debunking the assertion that excessive regulation of the banking industry is stifling growth.

The bill “will increase risky banking practices by the nation’s biggest banks,” the U.S. Public Interest Research Group said in a letter to House members. “To call it a bill for community banks and credit unions is wrong.”

There would be a fivefold increase, to $250 billion, in the level of assets at which banks are deemed to pose a potential threat if they failed. The change would ease regulations and oversight on more than two dozen financial institutions, including BB&T Corp., SunTrust Banks, Fifth Third Bancorp and American Express.

Eventually, the exempted banks would no longer have to undergo an annual stress test conducted by the Federal Reserve. The test assesses whether a bank has a big enough capital buffer to survive an economic shock and keep on lending. The banks also would be excused from submitting plans called “living wills” that spell out how a bank would sell off assets or be liquidated in the event of failure so it wouldn’t create chaos in the financial system.

“This will drive down the cost of borrowing,” Rep. Luke Messer, R-Ind., said on the House floor before to the vote.

After the bill cleared the Senate in March, its backers tread a line of trying to appease GOP lawmakers in the House, who have pushed for deeper financial deregulation, without losing the support of the core group of Democratic senators who voted for the bill. After weeks of wrangling, the House lawmakers agreed to vote on the Senate version.

Trump likely is eager to sign the bill after the House sends it to him. “We’re going to be doing a big number on Dodd-Frank,” he promised just weeks after taking office, complaining that the regulations choked lending, cramped the economy and hampered job creation.

The win on the banking bill adds to Trump’s marquee business-friendly legislative achievement, the sweeping tax bill enacted late last year that deeply cut taxes for corporations and wealthy individuals and offered more modest reductions for most ordinary Americans.

Supporters of the bill say Dodd-Frank was too blunt an instrument in response to the financial crisis, hurting smaller lenders that played no role in the debacle and which provide more than half the small business loans and over 80 percent of agricultural loans.

The legislation also would exempt certain banks and credit unions from requirements to report some mortgage loan data. The exempted data includes the age of a loan applicant, credit score, total loan costs and interest rate. Critics say that would make it easier for banks to discriminate against minorities seeking home mortgages and go undetected.

In response to the Equifax breach that exposed personal information for more than 145 million Americans, the bill would require free credit freezes for all consumers affected by data breaches. Currently most states allow the credit reporting companies to charge consumers a fee for freezing their credit.

Backers of the legislation note that the Federal Reserve still would have the authority to apply tougher standards for banks with $100 billion to $250 billion in assets.

The Democrats split into two camps over the Senate bill. One included several senators from rural states who worked out a compromise with its principal author, Sen. Mike Crapo, R-Idaho, chairman of the Senate Banking Committee. The other, led by Sens. Elizabeth Warren of Massachusetts and Sherrod Brown of Ohio, denounced the bill for catering to the banking industry and warned it would increase the likelihood of future taxpayer bailouts.

In all, 16 Democrats and one independent senator voted with Republicans on the Senate bill — a rarity for major legislation.